US Plans to Hit Huawei Even Harder by Restricting its Chip Supply

The ongoing fight between the US government and Chinese telecom giant Huawei is escalating further, with important news that the Trump Administration is preparing to deliver a potentially crippling blow to the company. Specifically, the US Commerce Department is planning to ban any American-made chip technology from reaching Huawei’s hands and will prohibit Taiwan Semiconductor Manufacturing Company (TSMC) — one of Huawei’s main suppliers — from shipping chips to Huawei. Finding a reliable flow of chips from elsewhere will take time for Huawei, which is the largest private company in China according to Xinhua.

Brief Summary of the US-Huawei Dispute

The US believes China’s authoritarian communist government uses Huawei as a backdoor method to spy around the world. An upcoming full ban on Huawei is currently set for May 15, partly to allow providers who rely on Huawei especially in the rural US to find alternatives. The US says Huawei steals trade secrets and engages in numerous bad faith actions as a proxy of China’s government. The US government has consequently put in strong efforts to block Huawei from being permitted to set up 5G networks which it says would significantly compromise state security.

There is not conclusive, publicly-available evidence of Huawei spying or transferring information to the Chinese government, although in January, 2019, Huawei employee Wang Weijing was arrested in Poland and charged with espionage. The company subsequently let him go. Huawei was blacklisted as a national security threat by the US last May.

Huawei was established by People’s Liberation Army (PLA) engineer Ren Zhengfei in 1987 and is headquartered in Shenzhen, China. It makes telecom equipment and infrastructure like broadband and mobile networks and produces smartphones and various consumer electronics such as smart TVs, tablets and computers. Boosted by years of massive investment from the Chinese Development Bank and Export-Import Bank which has helped fund its expansion all over the African continent, Huawei steadily rose in prominence and dominance and even began to overshadow Western firms. In July, 2018, Huawei surpassed Apple and became the second-biggest smartphone maker on the planet after first-place Samsung.

The Arrest of Meng Wanzhou

Ren’s daughter and CFO Meng Wanzhou was arrested in late 2018 by Canadian police while connecting to a flight at Vancouver International Airport. She was detained on behalf of the United States who wanted her to be extradited stateside for allegedly breaking their Iran sanctions in her Huawei business dealings though a subsidiary called Skycom. Meng is currently under house arrest in Vancouver and her next hearing is scheduled for March 30, however the extradition process could take years before being resolved and Meng has also counter-sued the Canadian government for their actions. Huawei also sued the US in March of last year for banning its products from use by federal government agencies.

In addition to US opposition, Huawei has been banned from New Zealand’s 5G network and that of Australia and the US, as mentioned. Canada is also reassessing whether Huawei will be permitted to be involved in its next generation of mobile networks and the EU has expressed concern as well. The UK has allowed Huawei to be involved in 5G although it won’t be involved in “core functions”, with the UK’s intelligence services saying security issues from the supplier are not overly serious and are “manageable.”

What Happens Next With the Semiconductor Ban?

In the coming weeks the semiconductor industry will try to get the Trump Admin to back down or weaken its ban, but the Administration wants the plan moved forward as fast as possible. Previously even tougher measures were wanted, but Trump said they were going too far on the restrictive side and could cut down on business opportunities in the future. America’s top three semiconductor producers make up almost half the world’s semiconductor chip revenue, which would starve Huawei for good options and cut off their supply chain to Qualcomm, Intel, Applied Materials and other chip makers.

The potential loophole, however, is that US semiconductor makers say the rules wouldn’t hit them if they don’t make the chips in the US so it would still be possible to continue business by outsourcing manufacturing. This loophole, and the desire to balance trade with security (despite the fact that doing so may not be possible) shows the complexity and difficulty of decoupling one link from the global supply chain of technology infrastructure even if it is a genuine threat. Huawei made a lot of its biggest progress under former Chinese leader Hu Jintao and they are still going strong.

As a likely arm of the sinister Communist Party of China with its concentration camps full of Uyghur, Kyrgyz and ethnic, Muslim minorities and brazen lies and coverups about coronavirus that allowed the disease to spread, not to mention its ongoing, overall untrustworthiness there is no reason to give Huawei the benefit of the doubt; however, there is also no reason to respond to this conflict from a short-term viewpoint and engage in tit-for-tat. While the chip restrictions would certainly show that the Trump Administration is willing to play hardball in the short-term they won’t necessarily completely hobble Huawei further down the road especially in the developing world and are likely to simply increase China’s state subsidy of the giant and its expansion into non-US-aligned nations.

They also don’t solve the issue of how the US will effectively compete from a big picture perspective. Although the chip restriction measures are one step in the right direction, taking proactive action to crowd out Huawei from expanding and boosting US capabilities and soft power while simultaneously hitting Huawei’s chip supply would be a superior tactic than focusing in on punitive measures in the midst of a chaotic pandemic where face masks and ventilators are hard to come by.

Indeed, the Huawei dispute points to the many contradictions and vulnerabilities at the heart of the Trump Administration, which has shown itself to be consistently frenetic, reactive and erratic in its approach to almost every challenge facing the United States and the world.